Money Basics: What is a credit report anyway?

Welcome to Money Basics, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important terms involving your money.

Everyone knows the commercials advertising free credit reports, but what exactly is a credit report and how is it used?

A credit report is a list of your financial history. It shows detailed information about your credit cards, outstanding and paid debts and loans. It also keeps track of which of your accounts are in good standing—and if you’re delinquent.

Are you a reliable borrower?

That information helps lenders determine how reliable you are as a borrower. Lenders check your credit for a number of things: buying a car, buying a home, taking out a loan, opening a new credit card, and many other things. Some employers even check your credit before hiring you, though there are people fighting to end that practice.

The three main credit bureaus are Equifax, Experian and TransUnion. They use the history in your report to create a borrower profile.

Having good credit can help you get loans with lower interest rates.

Watch your credit score

Keep an eye on your credit score. That’s a number that is calculated based on your credit report. The most commonly recognized score is your FICO score; that’s a number between 300 and 850. The average credit score in the U.S. is 695.

Your score indicates how risky it would be to lend you money. A higher credit score typically results in lower interest rates. The goal is to be a low-risk borrower so you can score great rates for credit cards, mortgages, car loans and other types of loans. Paying off your debts quickly is a great way to become a better borrower.